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2015 (8) TMI 225 - ITAT BANGALORETransfer pricing adjustment - Computation of Arms Length Price - selection of comparable - Held that:- CIT(A) was justified in applying the turnover filter and excluding companies whose turnover was beyond ₹ 200 Crores. No company which was included by the CIT(A) on the basis of the filter of diminishing revenue and therefore the grievance projected by the Revenue is found to be without any basis and hence dismissed. Standard deduction of 5% of the arm’s length price allowed to the Appellant by the CIT(A) - if the difference between the arithmetic mean of the profit margins comparable companies ultimately retained and the profit margin of the Assessee is more than 5% than no deduction under the proviso to Sec.92C(2) of the Act could be allowed to an Assessee. TATA Elxsi Ltd was rightly excluded from the list of comparable companies as it is specialised Embedded Software Development Service Provider and that it cannot be compared with any other software development company. Thirdware Solutions Ltd., and Geometric Software Solutions Ltd. were held to be functionally different from a company rendering software development services thus directed to be excluded as relying on case of Sunquest Information Systems (I) Pvt.Ltd [2015 (6) TMI 723 - ITAT BANGALORE] M/S.Exensys Software Solutions Ltd company has to be excluded for the reason that it is functionally different from a software development service provider such as the Assessee because it operates three business segments viz., provision of software services, BPO services and software products. Sankhya Infotech Limited (‘Sankhya’) company activities set out as compared in the context of a software development company such as the Assessee makes it amply clear that this company Sankhya cannot be regarded as a comparable. The same is directed to be excluded from the list of comparable companies. Bodhtree Consulting Ltd is directed to be excluded from the list of comparable companies as this company has erratic margins and growth over the years. The margins of Bodhtree are consistently changing. This reflects that the revenue recognition policy followed by Bodhtree is not proper and is resulting in consistent change in margins. Further, the growth rate over the years is also fluctuating to extremes. Further, growth in revenues is not supported by growth in expenses. Method of computation of deduction u/s.10A - Held that:- Expenses that are reduced from the export turnover should also be reduced from the total turnover .CIT v. Tata Elxsi Ltd [2011 (8) TMI 782 - KARNATAKA HIGH COURT] wherein held that whatever is excluded from the export turnover should also be excluded from the total turnover for the purpose of computing deduction u/s.10A of the Act. - Decided in favour of assessee.
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